Mortgage professionals warn clients face a fragile window as swap rate surge drives fresh lender repricing
Bank of England governor Andrew Bailey has warned that UK mortgage rates have risen faster than almost anywhere in the G7, as brokers urge clients to move before next week's rate decision.
Bailey told the Treasury Select Committee on Tuesday that residential mortgage costs have climbed around 75 basis points since hostilities between the US and Iran began in late February – the largest increase in the G7 with the possible exception of Japan.
The Bank Rate has been held at 3.75% since last December, when it was last cut, but that apparent stability has done little to calm markets. A £4.25 billion sale of 30-year government bonds was struck at a yield of 5.8168% – the highest borrowing cost for gilts of that duration since the UK Debt Management Office (DMO) was established in 1998. Higher gilt yields feed directly into the swap rates lenders use to price fixed-rate products, and that pressure has already reached borrowers.
Too close to call
Nicholas Mendes (pictured top middle right), mortgage technical manager and head of marketing at John Charcol, told Mortgage Introducer markets are currently pricing in a 0.25% rate rise at some point this year, with some analysts expecting a further increase in 2027. But next week's vote, he said, is harder to read than it looks.
"In terms of the vote for next week, I honestly think it's really too close to call," Mendes said. "We've already had some members coming out in the past week or so saying there should be a hike."
He pointed to two intersecting pressures – inflation, complicated by the effects of US trade policy, and the October budget, which markets are watching closely for signals on growth and spending.
"I think part of the thing markets are looking at is whether the chancellor is going to come up with the policies that help combat inflation while also supporting growth," Mendes said. "My hunch is that we might see a hold next week. The only reason I'm saying that is, does the bank wait another month and just see what comes out of the budget?"
On lender behaviour, Mendes said the spike in gilt and swap rates, which he noted has moved well above the levels seen during the 2022 market turbulence, has already triggered a fresh round of repricing. "Are we near the peak? I would like to think so. But I do think there's unfortunately going to be a few further rises in the next week or so."
A divided committee, a fragile market
The MPC's internal divisions are themselves a source of uncertainty. External member Megan Greene voted for a rate rise at the last meeting, warning of second-round effects from sustained energy costs feeding into wages and broader prices. External member Alan Taylor argued the Bank has effectively already tightened policy by withdrawing the expectation of cuts. Deputy governor Dave Ramsden, pointing to wage growth coming in below the Bank's own forecasts, voted to hold.
David Hollingworth (pictured top left), associate director at L&C Mortgages, told Mortgage Introducer the committee's back-and-forth is itself a signal brokers need to communicate clearly to clients. The expectation at the start of 2026 was for continued rate cuts, but the debate has since shifted entirely.
"The fact that we're talking about will it hold or will it rise is in itself a change in market expectation," Hollingworth said. "The fact that it's held so far is perhaps about as positive as it could be."
He described the current environment as one where fixed rates have been "twitching up and down" and warned that the speed of recent movements has caught some borrowers off guard. His practical advice to brokers is straightforward. Help clients secure the best available rate now, and be clear that locking in a deal does not rule out switching to a lower rate before completion if conditions ease.
"The only thing that borrowers can take away with any certainty is that there's a lot of uncertainty around at the moment," Hollingworth said. "And advisers will be trying to make that point really clear."
What does the rate hike threat mean for borrowers?
Nouran Moustafa (pictured top middle left), executive financial and mortgage adviser at Roxton Wealth, framed the committee's dilemma in stark terms. With the October budget approaching and political pressure weighing on the government, she argued the MPC faces what she called a "choose your poison" situation.
"It's either you hold the rate and harm the economy, or raise the rate and harm Westminster," Moustafa told Mortgage Introducer. "The bond market is not happy. Unemployment is going up, inflation is going up."
Moustafa said she would personally favour a rate rise, arguing the case for action on economic grounds is clear. But she acknowledged that political considerations create a difficult backdrop, and that clients are watching closely. Remortgage clients, she noted, are particularly anxious, especially those on tracker products taken out earlier this year.
"I have had some clients reaching out to me and telling me if they raise the rate next time by 0.5% or 0.75%, or if there is any sort of massive increase, they would much rather break the tracker right now and just move to a fixed rate," Moustafa said.
Buyers, by contrast, have largely adapted. She said many now understand that the Bank Rate is no longer the direct lever it once was for lender pricing, and that swap rate movements have become the more meaningful signal to follow when tracking how mortgage rates are being set across the market.
What brokers can do
Craig Head, director at Mortgage Required (pictured top right), told Mortgage Introducer a hike had moved from unlikely to plausible, but argued the industry has learned to operate in volatile conditions, and that volatility itself reinforces the broker's role.
"I think everyone was assuming up until recently that maybe they'd settled on the fact they weren't going to hike the Bank of England base rate this year, but I don't know now," he said. "Maybe there's room for one base rate increase. I think the pressure might start to ramp up on them to nudge it up once before Christmas."
Head acknowledged that external developments – geopolitical shifts, the budget, US Treasury signals – could change the picture overnight. What has not changed, he said, is demand. First-time buyers and existing homeowners are proving resilient, and Mortgage Required’s pipeline remains strong.
For brokers keeping pace with the latest UK mortgage rate movements, the advice from across the industry points in one direction – act now. The window for certainty is narrow, and as Hollingworth put it, the MPC is doing its best to steer a steady course, but the waters are anything but calm.
"They're trying to steer as steady a course as they possibly can, through what are very choppy waters."
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